The interest rate effect on private saving: Alternative perspectives

Conventional logic suggests that lowering the policy interest rate will stimulate consumption and investment while discouraging people from saving, but low interest rates may also prompt people to increase their saving to compensate for the low rate of return. Using data on 135 countries from 1995 to 2014, this column shows that a low-interest rate environment can yield different effects on private saving across country groups under different economic environments. A well-developed financial market, an ageing population, and output volatility can all contribute towards turning the relationship between interest rates and saving negative.